SAO PAULO/RIO DE JANEIRO, June 29 (Reuters) - In a victory for conservationists, Brazil’s huge cattle industry is bending to demands to curb destruction of the Amazon forest after heavy criticism of its leading role in deforestation.

Reforms by Brazil’s big slaughterhouses could move the industry toward increased productivity and away from the practice of burning trees to clear land in the world’s largest rainforest, industry officials and conservationists say.

But the creation of a tracking system to ensure that cattle weren’t raised on deforested land and the restoration of existing pastures come at a cost, and Brazil beef prices may rise as a result.

In the past month, since the release of a 40-page Greenpeace report detailing links between Brazil’s meatpackers and deforestation, the World Bank has withdrawn a $90 million loan to one firm. And supermarket chains said they would stop buying beef from 11 producers in the Amazon state of Para.

Big beef firms announced steps to ensure their cattle come from legal ranches. Beef exporters pledged not to accept meat from illegally deforested areas and to set up an electronic tracing system to guarantee the animals’ origin.

"There have been very good decisions," said Andre Muggiati of Greenpeace, whose report used satellite data to show that beef for Brazil’s domestic market and exports often comes from farms with recent deforestation.

"Now it is about implementation of deals. You have to monitor these commitments. If not, you lose it."

With multinational firms like JBS (JBSS3.SA), Marfrig (MRFG3.SA) and Bertin, Brazil is the world’s largest beef exporter and has the biggest cattle herd of 200 million.

A third of those are in the remote Amazon region. Taking advantage of lax law enforcement, many cattle ranchers have cut and burned forest to illegally expand their pastures.

The government has financed the industry with billions of dollars and aims to double Brazil’s share of the global beef export market to 60 percent by 2018.

Following the Greenpeace report, supermarket chains Wal-Mart Stores Inc (WMT.N), Carrefour (CARR.PA) and Pao de Acucar (PCAR4.SA) were among firms who said they would stop buying beef from 11 firms in Para that are being prosecuted for illegal deforestation.

NO EASY SOLUTION

Bertin, Brazil’s largest beef exporter, whose loan from the World Bank’s financing arm was cut in June, said big meatpackers expect a tracing system using electronic chips in cows’ ears will be ready in four years. The chips would show if cows come from areas with illegal deforestation.

"This will give us greater traceability than there is in developed nations," said Fernando Falco, Bertin’s executive director.

He said the system, would add an average cost of more than 3.50 reais ($1.75) per calf. But the reforms could open markets that local beef has been shut out of on health and sanitary grounds, he said, something that a reliable tracking system should help.

"We all know that we have to save this forest. We should have no problem increasing output without needing to cut down more area. We need to improve productivity," Falco added.

Degraded pasture in Brazil about the size of Spain could be restored for cattle and other farming uses. But only about 6 percent of public financing of the cattle industry goes toward this, environment groups say.

While Greenpeace’s targeting of the big beef producers has paid off, it is unclear if thousands of smaller processors and ranchers will change their ways.

Brazil’s big four meatpackers — JBS, Bertin, Marfrig and Minerva — make up 70 percent of Brazil’s beef export market and are sensitive to their image. But they only account for 30 percent of domestic cattle purchases.

"Unfortunately, environmentalists have vilified the whole sector here. If producers had alternatives, they would do the right thing," said John Carter, a U.S. rancher in Mato Grosso state and head of producer-based group Alianca da Terra.

His group advises farm communities on good land stewardship and is working with the slaughterhouses and beef retailers to find some additional profit margin to cover the increased costs for land conservation and other reforms.

"There is no easy solution to deforestation, that’s why nobody gives it," Carter said. "You need an economic stimulus to encourage people to do the right thing, otherwise it won’t happen. It never has."